Procter & Gamble says $4.9 billion buy is good fit

Tuesday, May 22nd 2001, 12:00 am
By: News On 6

CINCINNATI (AP) _ Procter & Gamble Co.'s latest deal to buy Clairol gives the beauty titan an even bigger stake in a hair care market grown more lucrative with the graying of baby boomers, the company said.

If approved by regulators, the $4.9 billion purchase would add the Clairol, Herbal Essences and Nice 'n Easy brands to P&G's lineup that includes Pantene, Pert, Head & Shoulders and Vidal Sassoon.

``Hair care clearly is one of our more promising businesses,'' P&G president and chief executive A.G. Lafley said Monday. ``With the acquisition of Clairol, we'll become one of the two leaders in hair care worldwide.''

Clairol, second only to industry leader L'Oreal, controls 39 percent of the U.S. hair-coloring market, according to the A.C. Nielsen market research company; L'Oreal controls 50 percent. Worldwide, Clairol has a 12 percent share, also No. 2 behind L'Oreal.

``This acquisition has all the right elements _ leadership brands, attractive margins and potential for growth,'' Lafley said. ``It is a winning combination for our consumers, our customers, our company and our shareholders.''

New York-based Bristol-Myers Squibb put Clairol up for sale in September to focus on its drug business. P&G sees the acquisition as part of the company's plan to revitalize itself by focusing on building sales of big brands.

The deal announced Monday would give P&G another way to reach consumers it already serves, especially in the hair coloring market. Lafley said sales of hair-coloring products are increasing at three to four times the sales of shampoo products.

Sales in the worldwide, $37 billion market for hair-care products _ including a $7 billion hair-coloring segment _ are increasing by 3 percent annually.

The market is becoming more lucrative because of aging populations in developing countries, more men coloring their hair and more young people experimenting with hair coloring, Lafley said.

Some analysts were concerned that P&G is still restructuring itself, dropping several of its food brands and cutting its work force by 17,500 jobs. And Clairol seems to have been less effective in appealing to younger customers than L'Oreal, said analyst Carol Warner Wilke of Credit Suisse First Boston.

Clairol would be P&G's biggest acquisition, dwarfing its 1999 purchase for $2.3 billion of pet food manufacturer Iams Co. Clairol will add $1.6 billion in annual sales to P&G's ledger, the company said.

It is unclear how many of Clairol's 4,000 jobs worldwide would be eliminated by P&G, which has its own distribution, research and manufacturing capabilities. But P&G said it expects to save about $200 million in costs from combining the operations.

Procter & Gamble markets approximately 300 brands to nearly 5 billion consumers in more than 140 countries. Its beauty brands also include Olay, Max Factor, Cover Girl, Giorgio and Hugo Boss.